Which of the following results in higher inflation and higher unemployment in the short run?
A)a more expansionary monetary policy
B)a more contractionary monetary policy
C)a decrease in the minimum wage
D)an adverse supply shock such as an increase in the price of oil

Question

Quizplus · Accepted Answer

An adverse supply shock such as an increase in the price of oil will lead to an increase in production costs for firms, causing a leftward shift in the short-run aggregate supply curve. This results in higher prices and lower output, leading to higher inflation and higher unemployment in the short run. Options A and B relate to monetary policy, which affects the level of aggregate demand and can result in inflation or unemployment, but not necessarily both at the same time. Option C, a decrease in the minimum wage, is also not directly related to both inflation and unemployment in the short run.

Which of the Following Results in Higher Inflation and Higher